It's hard to get by without a bank account.
When you think about handling your personal finances, what comes to mind? It's probably paying your bills, putting money away for the future, and perhaps applying for a loan. Unless you're paid in cash, handle all your bills in person, and are comfortable keeping your savings under your mattress, it's hard to imagine how you could manage without a bank or its not-for-profit equivalent, a credit union.
Banks and credit unions offer a wide range of checking, savings, and investment accounts. They're one of the first places to look when you need to borrow. And they increasingly provide access to national and sometimes global financial networks that let you get cash, have your paycheck directly deposited, transfer money among accounts, and make investments electronically.
THE BIG PICTURE
In fact, banks are essential to making the economy work. They make loans, which you can use to pay college expenses, buy a car, or purchase a home. They issue credit cards, which let you buy products or services when you need them and pay for them later.
The money you deposit in your checking and savings accounts is an important source of funds that the bank uses to make loans. And the interest you pay on the loans you take pays for the interest you earn on your savings.
But banks don't fill the role of financial intermediary just because it's good for you, or for the economy. They want to make a profit. To do that, they charge you more to borrow than they pay you for keeping money in the bank. In fact, they rarely pay you anything for the money you have in your checking account — which you can withdraw at any time — and very little on regular savings accounts, which give you similar access.
They charge fees on most of these accounts to help cover the costs of processing checks, providing account statements, tellers, ATMs, and multiple branches, plus the costs of advertising and promotion to attract your business. You may also face additional fees if you don't maintain required minimum balances, you write checks for more money than you have in your account, or you miss loan or credit card payments.
YOU CAN BANK ON IT
You may have some uncertainties where money is concerned, like whether you'll be able to live on what you earn and whether you'll be more financially secure in the future than you are today. Banks can't solve these problems. But using a bank provides one safety net in an otherwise uncertain world. Up to $250,000 of the money you deposit is safe no matter what happens to the bank.
The
Federal Deposit Insurance Corporation (FDIC), a government agency, insures accounts in its member banks, which include most banks in the United States. (There's separate, comparable insurance for credit unions.)
The $250,000 limit applies per depositor per bank. For example, if you had $250,000 in
certificates of deposit (CDs) in one bank and another $250,000 in CDs in another bank, all your money would be insured. But if you had $300,000 in CDs in one bank, only $250,000 would be insured.
You can actually qualify for more than the $250,000 coverage at a single bank if your assets are in different types of accounts. For example, an
individual retirement account (IRA) is insured separately from a taxable account. So is a trust account. And you qualify for coverage for accounts you own jointly with other people.
What's not insured is any money you invest through a bank that's not in a checking or savings account. For example, money in a mutual fund the bank sells is not insured, even if the name of the fund includes the name of the bank. But money in the bank's money market account is insured. The bank is required to tell you which accounts are insured and which are not. Be sure you know which are which.
HABITUAL BEHAVIOR
Finding a bank that will best meet your needs depends, in large part, on your spending and saving habits — or the ones you're trying to cultivate. The more you know about how you're likely to use your account, the more effective your search can be. To get started, ask yourself these questions:
- How often do you withdraw cash at an ATM?
- Would you like the option of banking online?
- How often do you use products, like bank checks or money orders, that you must buy in person?
- How many checks or electronic bill payments do you use a month?
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